another 'am i doing the right thing?' thread.

phil_b_2

Hi all,

I have been renting with the girlfriend for a year in a non central-heated 2-bed flat for £725 a month. the winter was horrifically cold! We would really like to buy a house now.

the situation is this:

We viewed many properties and put an offer of £150k in on one we really liked (£169k asking). We ended up agreeing at £160k.

Soliciters are currently pushing things through and all is fine.

the house is a 3-bed end terrace on a decent plot, with room down the side to extend. It is very well presented with a modern kitchen, oak floors throughout, converted attick with en-suite, sizeable conservatory and workshop outside. It is great for transport links and close to many high street shops - located on a quiet and (IMO) handsome street.
I anticipate there will always be decent demand for this price housing in this sort of area.

I am now very worried about the housing market (how many times have you heard that one recently?). I get the feeling we are buying at the WORST time???

My girlfriends parents are lending us 50k interest free, and we are putting in 10k each, so a 70k deposit. this means a rate of 5.6% fixed with £700 a month payments, £280 of which is repayment to the parents. We intend to make sizable overpayments each month too, touch-wood.

the options seem to be £725 burnt on rent each month Vs £420 burnt on mortage interest. Initially it is obvious which is best, but if we buy a house that loses £500-1000 in value each month we would be burning much more by buying... though that depreciation is far from certain.

Considering the above do you think it makes best sense to proceed with the purchase despite the current marker? Or would you continue to rent and wait?

While wanting to create a nice home, I also want to make a sound financial investment for the first time in my life, and the doom and gloom on the news is very annoying at this stage!

I feel we could have got the house for 155k, and this bothers me a lot. I'm not sure I could bring myself to start re-negotiating. would that be too cheeky and offensive at this stage???

Thanks

mpsavuk

phil_b wrote: »

Hi all,
I am now very worried about the housing market (how many times have you heard that one recently?). I get the feeling we are buying at the WORST time???
Thanks

I agree, you are buying at the top of the biggest house price bubble in history just as the market is turning so be prepared to lose some value on this property. But if you intend to live there for many years perhaps it doesn't matter? You probably won't end up in negative equity with such a large deposit but you may see some of your GF's parents money go up in smoke.And maybe all your deposit as well.Who knows.

On the other hand you could carry on renting and pick up a place much cheaper saving yourselves thousands in interest payments and a few hundred quid in stamp duty. You may even be able to afford a better place than the one you are considering buying if prices drop far enough?

phil_b_2

mpsavuk wrote: »

You may even be able to afford a better place than the one you are considering buying if prices drop far enough?

thanks for you thoughts. The above comment is another key thing.

On the other hand if they dont go down I'll be frustrated for waiting. Just in a confused state at the mo. From our finances point of view, we've just hit prime-time to buy, and its really annoying it has coincided with all the market down-turn hype. At least we didnt buy a few months ago though I guess.

phil_b_2

mpsavuk wrote: »

you are buying at the top of the biggest house price bubble in historyquote]


^^ by the way, that statement just scared me considerably more lol.

Generali

phil_b wrote: »

Hi all,

I have been renting with the girlfriend for a year in a non central-heated 2-bed flat for £725 a month. the winter was horrifically cold! We would really like to buy a house now.

the situation is this:

We viewed many properties and put an offer of £150k in on one we really liked (£169k asking). We ended up agreeing at £160k.

Soliciters are currently pushing things through and all is fine.

the house is a 3-bed end terrace on a decent plot, with room down the side to extend. It is very well presented with a modern kitchen, oak floors throughout, converted attick with en-suite, sizeable conservatory and workshop outside. It is great for transport links and close to many high street shops - located on a quiet and (IMO) handsome street.
I anticipate there will always be decent demand for this price housing in this sort of area.

I am now very worried about the housing market (how many times have you heard that one recently?). I get the feeling we are buying at the WORST time???

My girlfriends parents are lending us 50k interest free, and we are putting in 10k each, so a 70k deposit. this means a rate of 5.6% fixed with £700 a month payments, £280 of which is repayment to the parents. We intend to make sizable overpayments each month too, touch-wood.

the options seem to be £725 burnt on rent each month Vs £420 burnt on mortage interest. Initially it is obvious which is best, but if we buy a house that loses £500-1000 in value each month we would be burning much more by buying... though that depreciation is far from certain.

Considering the above do you think it makes best sense to proceed with the purchase despite the current marker? Or would you continue to rent and wait?

While wanting to create a nice home, I also want to make a sound financial investment for the first time in my life, and the doom and gloom on the news is very annoying at this stage!

I feel we could have got the house for 155k, and this bothers me a lot. I'm not sure I could bring myself to start re-negotiating. would that be too cheeky and offensive at this stage???

Thanks

The thing is if the house drops in value then it really doesn't matter unless you need to move. It sounds like the sort of place, while not the palace that you might aspire to, that you could live in pretty much forever.

My feeling is that house prices will fall substantially (20-40% in real terms). My feeling also is that it doesn't necessarily matter.

Gorgeous_George

Two options

1) Buy now at £160K and £90K mortgage.

2) Buy in a year or two at £80K (if prices cra...orrect by 50%) with £10K mortgage.


mmmmm...., let me think. "What would I do?"

I know, find a better rental.

GG

phil_b_2

Gorgeous_George wrote: »

Two options

1) Buy now at £160K and £90K mortgage.

2) Buy in a year or two at £80K (if prices cra...orrect by 50%) with £10K mortgage.


mmmmm...., let me think. "What would I do?"

I know, find a better rental.

GG

50% drops within a couple of years sounds extremely unrealistic to me!!

I would expect maybe 15%. Demand will surely never drop to anywhere near a level that would necesitate selling at 80k. Demand at that range would then sky rocket.

It would of course be great if that did happen.

Generali: I agree, once you are on the ladder, from that point on it doesnt really matter what happens to prices as it is all relative. Its a case of kicking myself into unconciousness if I could have held on for a better property at the same price, or just a lower mortgage.

oswestry123

Phil B you need to ask yourself how long you plan on living in this house if the answer is 5 years plus I can't see you losing out on this investment. Even if the value takes a tumble (i seriously doubt we will see a crash as interest rates low and unemployment is low) prices will recover and I'm sure will rise again.

In 2002 i had the same thoughts as you. We brought as prices had been rising bigtime (the house we got sold 6 months before we brought for 30K less) and certain websites and family/friends were saying wait a year until it crashes don't buy now you are making a huge mistake!! I'm so glad we didn't listen as we would never have afforded a 3 bed house the year after!!!

I'm not telling you its the right thing to do as nobody could tell you the answer to that I'm just saying that it is a buyers market at the mo but it won't be forever.

Best wishes with the new home.

AQ42_2

Rule One: No-one knows the future. Anyone who claims otherwise is wrong.

My take on this is this. There is a base cost for a (new) house; the cost of the bricks, glass, tiles, wires, pipes etc and the cost of paying people to put them all together. Anything above that is either land cost or scarcity value; in some senses they are the same thing.

Whether you blame the politicians or the mandarins, this country is currently pursuing two contradictory policies. One is to grow the population by immigration. The other is to restrict development of new houses, both in number and in size. Add to that the demand from the existing population for more houses because people are less likely to form and maintain stable household relationships, and you have a situation where more people want houses than there are houses to go round. Hence the price rises until supply and demand equalise; GCSE economics.

Most people aspire to a ‘comfort level’ of house, which may change over time. Not everyone would want Chatsworth, even if they could afford it. But within that most people want the best house they can afford. Best is sometimes size, and sometimes location. But a lot of us, me included, would like something better than we have currently got but can’t raise the money.

So in my view there is only likely to be a significant fall in house prices if either the demand goes away, the supply goes up, or people’s ability to pay falls. The first two aren’t likely to happen any time soon, but the third might if the economy goes belly up, as it might be beginning to do. It is true that house prices relative to incomes are at an all time high, but you need to ask yourself why that is. I don’t think it is classic bubble: most houses are bought for the owner to live in. There may be short term fluctuations, but then what is £5000 over a lifetime? But rule one: no-one knows the future.

So I don’t think there is going to be a huge crash. Rental is a good option for some, but for many people buying is cheaper over time. Just make sure that there is a good prospect that you will be able to afford it, and as you are not married, get a good lawyer to sort out where you both stand should you go your separate ways, before you sign anything.

Microstar_2

As I've said on this forum before (sorry for repeating) I've seen the '70s correction, the early 90's crash and now this one. I own outright a few houses that I won't be selling in the near future and so like to feel that I'm reasonably 'independent' - no strong vested interests either way.
The way I see it is that the whole psychology of the market has changed. A few years back people were prepared to pay what they truthfully thought were stupid sums for a house because they thought the price of the house couldn't go down. That's the nature of any bubble - its a kind of mass hysteria that just keeps on inflating the bubble and it becomes self-sustaining after a while.
When the bubble 'pops' this whole mass-psychology thing goes into reverse and people become fearful of buying because they think the price will go down - the house they want will always be cheaper next week, if they wait a bit they'll get better value etc etc. People like to talk about 'stagnation' and 'correction', but prices WILL fall - in fact most of the data we see is lagging, 'spot' prices are probably already 10% down. So a minimum 10% by this time next year and probably twice that.
I would guess at four years to go down and four years to come back up - that's roughly what happened in the 90's (the downturn actually started in '89, I should know because that's when I bought one of my houses!).
The 'demand' thing is spurious. I'm not sure that there is significant under-supply of housing in many parts of the country. In fact in many towns and cities there is a good balance between supply and demand, although obviously not in parts of the SE.
If you intend to stay put for 4+ years it probably doesn't matter. If anything happens (relationship split, want to emigrate etc etc) then money will be lost..

Personally, if I were in your shoes I would not buy, I would look for a better value rental property for the next few years.

ruggedtoast

phil_b wrote: »

50% drops within a couple of years sounds extremely unrealistic to me!!

I would expect maybe 15%. Demand will surely never drop to anywhere near a level that would necesitate selling at 80k. Demand at that range would then sky rocket.

It would of course be great if that did happen.

Generali: I agree, once you are on the ladder, from that point on it doesnt really matter what happens to prices as it is all relative. Its a case of kicking myself into unconciousness if I could have held on for a better property at the same price, or just a lower mortgage.

Youve misunderstood supply and demand. Prices are set by demand indexed with ability to pay.

There is a practically limitless demand for housing, always has been always will be, but the prices that people can afford are falling. £80k does sound a bit low though.